Some have warned that a W-shaped recession is becoming inevitable as the financial problems of Portugal, Italy, Greece and Spain (the PIGS economies) are setting off another global financial crisis and causing stock markets in Europe and Asia to slump. Why is the EU, an integrated economic entity, facing these problems?
Compared with nations in East Asia, which vary greatly in size, the major member states of the EU, such as Germany, France, Spain and Italy, do not differ too much in size, making them more suitable for economic integration. These qualities saw the EU, the world’s second-largest economic entity, come into existence in 1993. Back then, everybody believed Europe would be able to greatly expand its competitiveness thanks to economies of scale and resource integration. In 2001, Greece applied to join the eurozone, hoping to share in these benefits.
However, things did not go as planned. From 1992 to 2008, the EU’s economic growth has been a mere 1.9 percent, far behind Asian nations, which have yet to integrate their economies, and lower than the 2.7 percent economic growth enjoyed by the US. This lack of growth gave rise to the new financial crisis amongst the PIGS economies. Many leading academics and analysts have blamed these problems on the poor fiscal policies of these four countries and on international speculators. However, the real problem lies in the EU’s marginalization effect.
The major EU member states do not differ greatly in size, thus making it harder for one central hub state surrounded by several satellite states to develop. However, differences do exist. Germany has used its geographical position at the EU’s center and its advantage as the biggest economy to consolidate a position as the central hub of Europe. France comes in second, and Portugal, Spain, Italy and Greece have gradually become marginalized.
It is not that Germany and France do not inject resources and technology into these states, but more resources and technology flow from those states toward the central hub state. This has caused employment, income and revenue in these marginalized states to drop and unbalanced national finances to become increasingly common. Germany is now the EU’s largest exporter, with an annual trade surplus of US$100 billion. Without the agreement of the German parliament, the injection of 22.4 billion euros (US$27.4 billion) into the Greek economy to save it would never have succeeded.
In recent years, Taiwan has also piled up debt. Last year, the government collected NT$265.2 billion (US$8.2 billion) less in taxes than in the year before. After two years of President Ma Ying-jeou (馬英九) and his administration, government debt has exploded by more than NT$700 billion. The main reason for this is the way China has been playing an increasingly central role, and in so doing, it has taken more and more of Taiwan’s money.
Anybody who still believes that signing an economic cooperation framework agreement (ECFA) with China can greatly improve Taiwan’s economy and create a golden decade for Taiwan is either a fool or a fervent supporter of the Greater China ideology. The problems facing Greece serve as an important warning to Taiwan. What’s more, unlike Taiwan, Greece does not have to contend with a country that threatens its sovereignty.
If an ECFA is signed, Taiwan’s economy will not only be hollowed out as a result of the “one China market” effect, it is also very possible that Taiwan will not be able to export its products to China and other ASEAN countries unless they have “Made in China” stamped on them.
Huang Tien-lin is a former national policy adviser to the president.
TRANSLATED BY DREW CAMERON
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